5 Money Subjects You Need to Talk About Before Tying the Knot
Getting married will change the way you file your taxes every April 15. There is good news, though: Many of the changes will be positive ones that can help boost your deductions and save you money.
Let’s look at five of the biggest tax changes you’ll face after the wedding bells stop ringing.
- Filing Jointly vs. Separately
Once married, couples have to face a big tax decision: Should they file their taxes jointly or separately? In most cases, married couples who file their taxes jointly save more money. But there can be exceptions.
Couples who file their taxes jointly in 2017 will qualify for a standard deduction of $12,700. When married couples file separately, they each can claim a standard deduction of $6,350. Note that if your spouse chooses to instead itemize their deductions, you will have to as well.
Filing jointly makes especially good financial sense for married couples in which one person earns significantly more than the other. The averaging effect of combining two incomes can bring these couples out of higher tax brackets.
When couples file jointly, they might also qualify for several tax credits and deductions that they wouldn’t otherwise get if filing separately. This could include the earned income tax credit, child and dependent care tax credit, American Opportunity Act education credit, and the Lifetime Learning education tax credit. Couples who have adopted might also qualify for adoption tax credits when they file jointly. You also will not be allowed to deduct student loan interest if you and your spouse opt to file separately.
This doesn’t mean that filing jointly is always the right decision for married couples. Say one spouse has significant medical expenses, casualty losses, or miscellaneous itemized deductions. Taxpayers can deduct medical expenses and casualty losses only after they pass 10% of their adjusted gross income for the year. That milestone can be easier to reach when couples file separate tax returns.
Taxpayers can deduct miscellaneous itemized deductions after they exceed 2% of their adjusted gross income. If one spouse has a significant amount of these deductions, it might make financial sense for this taxpayer to file separately because the spouse will be able to claim a greater percentage of these deductions.
- You Might Be on the Hook for Your Spouse’s Filing Mistakes
Before you got married, you were responsible for the information you provided on your own tax return. If you are married and filing your taxes jointly, you are now also responsible for any information your spouse provides on his or her tax return.
This means that if your spouse provides incorrect information on deductions, charitable contributions, or income, you could also face financial penalties from the IRS. If you suspect your spouse may have been dishonest with their tax returns, intentionally or not, you may choose to protect yourself by filing separately. This will ensure you’re only responsible for your own tax liabilities.
- It’s Easier to Protect Your Estate From Taxes
You might be worried that too much of your estate will be gobbled up by taxes after you die. Being married should ease these concerns. Federal laws state that you can leave any amount of money to your spouse after you die without generating estate taxes. This makes it far easier to protect the financial assets that you want to leave behind.
- Your Tax Bracket Might Change
The rate at which your income is taxed depends on the amount of money you made during the most recent year. Filing your taxes jointly might change your tax bracket.
In 2017, married couples filing jointly who earned $18,650 to $75,900 in the previous year will fall into the 15% tax rate. This means this couple would pay $1,865 in taxes plus 15% of any money they earned over $18,650. Married couples filing jointly who earned $75,900 to $153,100 would fall into the 25% tax rate. They would pay $10,452.50 in taxes plus 25% of any dollars they earned over $75,900.
The rates go up from there. It’s important to note that depending on your spouse’s earnings, your tax rate might rise or fall after you get married if you decide to file jointly.
- If You Bought a Home, You Could Enjoy Major Deductions
Owning a home comes with an important tax deduction: the home mortgage interest deduction. This deduction allows homeowners to deduct the interest they pay on their mortgage loan throughout the year. This deduction can be especially valuable during the years in which you first own your home, as a large amount of your monthly mortgage payment will be made up of interest. You can also deduct the property taxes that you pay on your home each year, as well as any mortgage points.